India Update
Published by MAC on 2005-12-10
India Update
10th December 2005
Employees of a public mining company are accused of selling explosives to "terrorists". One steel company claims that those it's likely to displace are happy with its plans. Another boldly goes where none of its compatriots have gone before. The world's biggest cement maker appears to be at odds with its hosts. The country's central government welcomes cooperation with its chief rival, while a state leader opens his arms - and the resources of his tribal state - to the same competitors.
It's all in a day (or at least a fortnight)'s work for India's mining promoters.
India, China sign MoU on mining sector
http://www.indiainfoline.com/news/news.asp?dat=71269
5th December 2005
The Minister of Mines, Sis Ram Ola, said on Monday that India and China have recently signed a Memorandum of Understanding (MoU) to strengthen ties in the field of mining. It seeks to exchange information on mining investment, legislation and exploration; promote cooperation in research policies and regulations, technical assistance, training programmes and joint ventures in third countries.
It has been agreed that the subordinate organizations like Geological Survey of India, Indian Bureau of Mines and Public Sector Undertakings under the administrative control of the Ministry of Mines shall identify the projects of mutual interest with their Chinese counterparts to implement the MoU.
No specific areas have so far been identified to undertake the cooperation for development of minor industry, mineral resources assessment and technology transfer. However, the projects could be identified on mutually agreeable basis between the two sides on any of the specific areas embodied in the MoU.
Raman Singh invites Chinese investment in Chhattisgarh
WebIndia.com / New Delhi
26th November 2005
Chhattisgarh Chief Minister Raman Singh met representatives of prominent Chinese public sector company Xingxing in Beijing today and invited them to invest in his state.
Mr Singh said Chhattisgarh had immense possibilities for value added industries and favourable conditions prevailed in the state for setting up ancillaries of steel and mineral based industries.
Xingxing Chairman Ming Liu hosted a dinner in honour of the Chief Minister at the State Guest House in the Chinese capital.
Dr Singh pointed out that, apart from mineral based industries, Chhattisgarh had immense possibilities in information technology, biotechnology and herbal sectors. The state had huge stocks of high quality iron ore.
The iron ore of Bailadila is being exported to Japan. It had a reserve of 23,360 tonnes of iron ore accounting for 18.23 per cent of India's iron ore production. The state produced 26 per cent of the country's sponge iron.
The Chief Minister said the state also had huge limestone and coal deposits. The state produced 18 per cent of the country's cement and coal.
Chhattisgarh is rich in other mineral resources as well which could be processed cheaply in the state, the Mr Raman Singh told the Chinese.
Lafarge project hits limestone hurdle
The Telegraph (Calcutta) Jamshedpur
29th November 2005
French cement major Lafarge’s plan to start a Greenfield project in Jharkhand has run into rough weather due to the non-availability of the required grade of limestone in the state though government sources claim otherwise.
Sources in the company said a deposit of cement grade limestone, which could be mined, is yet to be identified in Jharkhand but added that the Greenfield project could be set up in any of the 22 districts and plans for further expansion are also on the anvil.
State government officials, though, refused to buy Lafarge’s theory on the non-availability of cement grade limestone. Mines and geology secretary A.K. Singh said the required limestone was available in Chaibasa and Palamau districts but Lafarge had not apprised the government of their plans. “Let them come to us first, then we will extend all possible help in identifying the mine able deposits of cement grade limestone,” he said.
Industry sources observed that many cement companies in Jharkhand were facing similar problems. Though the limestone is available in certain pockets, they added, the quality was of an inferior kind and running a Greenfield project with that kind of deposits would be difficult.
The sources further said good quality limestone is available at Satna in Madhya Pradesh, Bilaspur in Chhattisgarh and Chandoria in Rajasthan, but for Lafarge to procure it from these places would be an expensive proposition as the price of cement grade limestone is often fluctuating.
Industry observers said a large cement plant generally requires huge capital investment, large cement grade limestone deposits and other infrastructure facilities. However, they added, there are a number of low- to- high-grade limestone generating resources, like small and scattered deposits and usable grades from steel industries, which are not adequate for setting up a cement plant of the size proposed by the overseas-based manufacturer.
Apart from cement manufacturing, the company is also providing masonry training to the unemployed youths in Jharkhand. Company sources said training of the first batch of 40 has been completed at Bahragora and a majority of these candidates have found employment with prominent builders and contractors. Training for the second batch of 50 commenced earlier this month.
Lafarge is now trying to identify more areas, apart from masonry, where employment potentials exist with the possibility of training village youth to become skilled and qualified specialist.
Though Lafarge launched its Indian operations only in 1999, by taking over the cement division of Tata Steel, it is currently the leader in the eastern Indian cement market. Later, the steel major developed three cement plants — two in Chhattisgarh and one in Jharkhand.
Can Tata Steel buck the trend?
Sunil Nayanar / Mumbai
28th November 2005
These are not good times for steel stocks. Riding on the back of an upturn in global and domestic steel demand and hence steel prices for the better part of the past three years, the tide is apparently turning for steel companies. And the markets as usual have been quick to pounce on steel stocks, giving them the cold shoulder, while rewarding most others.
Compared to a near 47 per cent rise in the Sensex in the past year, leading steel stock returns pale in comparison. The Tata Steel stock has appreciated by 10 per cent during the period, while that of SAIL (Steel Authority of India) has actually declined by 3.38 per cent. Other steel stocks are not doing any better.
With the outlook on steel prices getting duller, things are not going to improve in a hurry too, say analysts. While Indian steel has its own advantages, being among the lowest cost producers in the world for starters, the future is going to be determined by how well they are able to adapt to changing realities.
While steel prices are under pressure, industry leader Tata Steel is ensuring future growth and expanding into new areas. It recently announced a 50:50 joint venture with the Australian major BlueScope Steel.
The JV will enable Tata Steel's foray into the business of zinc and aluminium metallic coated steel, painted steel and roll-formed steel products. The company will invest capital cost of Rs 1200 crore on four manufacturing locations in India and a network of sales offices across the SAARC region.
The revenues from the JV are expected to cross Rs 1,200 crore by 2010 and Rs 2,000 crore when the capacities are fully utilised. The new venture puts the company's plans for a global presence into focus. There is more.
Going global
Tata Steel, the country's largest private sector steel company, is in talks with Anglo American of South Africa to acquire its 79 per cent stake in Highveld Steel. While the Highveld acquisition is still going through the evaluation process, Tata Steel managing director, B Muthuraman admitted that it is not the only company Tata Steel is eyeing.
"There are several other companies on our radar," he remarked on the sidelines of a press conference to formally announce the company's joint venture with BlueScope Steel.
According to analysts, if the acquisition of Highveld Steel comes about, Tata Steel's production capacity will go up to 6 million tonne from the current level of 5 million tonne. Highveld, the largest vanadium producer in the world, manufactures steel, vanadium products, ferro-alloys, carbonaceous products and metal containers and closures.
Analysts observe a clear trend in Tata Steel's plans to expand capacities. But Highveld will not be the first global acquisition for Tata Steel.
In February 2005, the company completed the acquisition of Singapore's largest steel company, NatSteel Asia, which has a two-million tonne steel capacity with presence across Singapore, Thailand, China, Malaysia, Vietnam, the Philippines and Australia.
As per the deal, the enterprise value of NatSteel Asia was pegged at Rs 1,313 crore. Tata Steel has plans to establish steel manufacturing units in Iran and Bangladesh too.
With a stated vision to become a 20-25 million tonne company by 2015, the company has also signed a few joint ventures and announced organic expansion plans.
In June, Tata Steel signed a memorandum of understanding (MoU) for setting up a five-million tonne green field integrated steel plant in the Bastar region of Chhattisgarh. With the company's one million tonne expansion programme at Jamshedpur nearing completion, the company has also initiated a further two-million tonne expansion programme at Jamshedpur.
Plans are also afoot for setting up a large integrated green field steel plant in the state of Jharkhand. The proposed steel plant will have an initial capacity of 5 million tonnes per annum, and will be completed in four years time.
This capacity will be expanded to 10 million tonnes per annum in the subsequent five years. The capital cost is expected to be approximately Rs 15,000-20,000 crore in the first phase and in the range of Rs 30,000 crore to Rs 35,000 crore on completion of the second phase.
It is not just the capacity expansions the company is interested in. Tata Steel is integrated backward with owned iron ore mines and collieries.
To further enhance its competitive advantage in raw materials the company has also signed an agreement to buy a five per cent interest in the Carborough Downs Coal Project located in Queensland, Australia. It also plans to develop a deep-sea port in Orissa to facilitate flow of inbound and outbound materials.
Growing concerns
Despite the company's impressive credentials and strong fundamentals, some analysts have expressed doubts about the future prospects. The reason? A likely fall in steel prices. With steel capacities on the rise across the globe, there are fears that it could lead to over capacity a few years a down the line, thus softening prices. The trends are already emerging.
Current landed price of imports of hot rolled coils are down two per cent in October to Rs 19,845 per tonne compared to September. The prices were ruling at Rs 24,510 per tonne in May. Heightened production, especially in China and a lack of growth in demand are the main reasons for the decline in prices, say analysts.
Analysts also expect China to turn net exporter in 2006, and thus contribute to the already excess steel supply in the Asian region. International steel prices have already fallen by 30 per cent from the peak level touched in March this year.
According to a recent report by a foreign brokerage house, Tata Steel has cut its long steel product prices by an average six per cent in the current quarter. The report also warned that there is a strong likelihood of the company cutting flat steel prices again by 5-6 per cent to bring its prices at parity with landed prices.
Will earnings growth slow down?
Worries on lower prices have also led to many analysts downgrading the Tata Steel's EPS estimates. Tata Steel posted a 12.46 per cent growth in net profit to Rs 1045.42 crore in the quarter ended September 2005 as compared to the corresponding quarter in 2004.
Net sales grew by only 3.39 per cent during the quarter to Rs 3865.10 crore. The earnings growth was well below analyst expectations. Operating profit growth was limited to a mere 1.4 per cent at Rs 1651.6 crore in the September quarter.
Though the quarterly results are not strictly comparable with September quarter of FY04, considering the merger of NatSteel Asia with effect from February 2005, there was a decline of 84 basis points in the operating profit margin of the merged entity. Sequentially too, operating margins fell 311 basis points in the September quarter.
According to analysts, a key factor that contributed to the squeeze on margins was a 19.53 per cent y-o-y growth in raw materials costs consumed in the last quarter. The increase was largely on account of higher coke cost. Also, other expenditure grew about 6.9 per cent y-o-y.
The company also suffered on account of lower prices. Spot HRC prices were down about 12-15 per cent on a y-o-y basis in the second quarter of 2005-06 and that was largely due to surging steel output in China. For the first half of 2005-06, net profit stood at Rs 1969.53 crore, an 18 per cent increase from September 2004.
Given the huge capex plans that Tata Steel has lined up, the worry is that cash flows, among the company's strong points may take a hit going forward.
According to an estimate Tata Steel is likely to implement a capex of Rs 18,500 crore over 2006-07 and 2007-08. One foreign brokerage firm recently estimated that free cash flows at Rs 1046.80 crore in 2004-2005 will turn negative from 2006-07 onwards.
The brokerage goes on to add that there is a risk of the balance sheet getting stretched as the capex plans roll out. This combined with a falling steel prices are what makes analyst fret.
However, there is another school of thought. Tata Steel management itself has stated that steel prices are likely to be stable going forward. With the company's inherent strengths of a contained cost structure, better product mix and higher sales of branded products, Tata Steel is expected to achieve much better operating margins than its peers.
The company plans to improve its product mix further, while reducing costs by higher usage of domestic coal, higher coal injection and a lower coke rate. The company also intends to increase usage of sinter, while reducing usage of sponge iron and purchased metallic. An improvement in margins of NatSteel should also augur well for the future. These steps should enhance the company's status as one of the lowest cost producers of steel in the world.
Tata Steel's stated plans for the future include de-integrated dispersal of facilities in select geographies, ownership and development of raw material sources, access to captive ports and other dedicated logistics facilities, branding and value added products while pursuing strategic acquisitions.
Best of the lot
According to a leading domestic brokerage, the company's revenues are likely to grow by above 8 per cent to Rs 15,800 crore in FY06, while bottom line growth is slated to be around 23 per cent at Rs 4340 crore. The stock is currently valued at a P/E of 5.3 on a trailing 12-month basis at Rs 342.
Global peer group valuations, which include companies like Arcelor (3.7x), Baoshan Iron & Steel (5.3x), Blue Scope (5.4x), Posco (4.6x) and Thsyssenkrupp (7.2x) are comparable. Closer home, analysts pick Tata Steel as the best bet in the steel sector.
According to Vijay Bhambwani, CEO of Mumbai-based BSPLindia.com the uptrend seems to have fractured in Tata Steel. “Rs 320 level are a crucial support levels for the stock. If the stock goes below these levels, we could witness medium term bearishness in the stock.
Buying conviction will emerge at the counter only if the stock goes above Rs 385 levels,” he notes. Analysts are of the opinion that steel stock performances could depend on international steel price trends. However, even if the short term outlook is murky, the consensus is that Tata Steel has the wherewithal to emerge a winner in the long run.
"Tata Steel is the most stable in its peer group, and given its credentials and inherent strengths, it is also the most attractive," says one analyst.
Visitors back with hope
Amit Gupta
The Telegraph, Calcutta Jamshedpur
26th November 2005
Naveen Jindal should be happy. His plan of assuring the jittery villagers of Asanboni that they would not get a raw deal, if his plant finally comes up at the place where their village now stands, seems to have worked.
The group of 35 people who were taken to visit the Jindal Steel and Power Limited’s (JSPL) Raigarh plant in Chhattisgarh returned, this afternoon, satisfied.
The idea had been to allow these villagers to see for themselves how the displaced people there were rehabilitated. This way, the company hoped to cut down the resistance they were facing at Asanboni where a five-million-tonne steel unit and a captive power plant is supposed to be established. Describing their visit, the villagers said the JSPL had offered the people in Raigarh “the best in terms of rehabilitation that included housing and jobs, depending on education qualifications and other criterion”.
Ashu Das, a resident of Veergaon under Asanboni panchayat, said the company had provided facilities like housing, schools, electricity, parks and jobs to the villagers there. “We are ready to give our land to the company provided it announces a proper rehabilitation packages here. As of now, we do not have even civic amenities. Out of the 16 villages that the company intends to acquire only two to three villages are supplied power and yet the villages are hardly 15 km from Jamshedpur,” he pointed out.
Tapan Aggrawal, whose family has been at Asanboni for the past two generations, said the areas where the Jindals have set up their steel and power plant in Raigarh had registered marked development. “We have reasons to hope that things will be okay.”
The villagers also admitted they were extended “excellent” hospitality. While an air-conditioned coach was hired for the group, from Calcutta, a four-wheeler was provided to them for the local trip at Raigarh. The visitors were accommodated at the company’s guest house and treated to “good food”. The group had yielded to go after much persuasion as the original group that was supposed to undertake the visit had split into two. The accusation was that the company was interested in taking only those people who were either landless or had very little to lose in the process.
“The first trip to Raigarh seems to have been fruitful. Now, more villagers are showing interest in visiting our plant. We are arranging for a second trip,” said senior general manager of the company Abhijit Ghosh.
Mines providing bombs to Naxals
Vishwa Mohan
Times of India
25th November 2005
NEW DELHI: Every time there is a landmine blast carried out by Naxalites, security agencies wonder where the ultras got the explosives.
Central agencies now know that it is not only smuggled into the country, but is also siphoned off from the stocks of public sector coal mines.
This was found during the country-wide surprise checks against the public sector coal companies carried out on Tuesday and Wednesday.
CBI sleuths found that a number of officials of the coal companies had allegedly diverted explosives, used for excavation, to the open market which, in turn, reached Naxalites as well as other anti-social elements in Chhattisgarh, Jharkhand, West Bengal and Maharashtra.
An official said though no specific name has surfaced so far, it was found during the initial investigation that some officials had been earning a lot of money by "over issuance of explosives".
The sleuths have got enough leads to get to the bottom of the nexus between officials of the coal companies and local population in the diversion of the explosives, specifically gelatine sticks, he added.
The CBI sleuths in association with vigilance departments of the coal companies had conducted surprise checks at Wani Railway siding of Western Coalfields, Nagpur; Talcher of Mahanadi Coalfields, Sambalpur; Kathara area of Central Coalfields, Ranchi; Tilaboni Collieries of Eastern Coalfields, Asansol; Korba and Deepika extension mines of South Eastern Coalfields, Bilaspur; and Govindpur Colliery of Bharat Coking Coal Ltd, Dhanbad.
They found a number of documents during the searches, showing "over issuance of explosives" by officials.